CUNA Comment Letter

Proposed Rulemaking on the Confidentiality of Suspicious Activity Reports

June 8, 2009

Financial Crimes Enforcement Network
Department of Treasury
Post Office Box 39 Vienna, Virginia 22183

RE: TREAS-FinCEN-2008-0022, Proposed Rulemaking on the Confidentiality of Suspicious Activity Reports

To Whom It May Concern:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the Financial Crimes Enforcement Network’s (FinCEN’s) proposed rule on Suspicious Activity Report (SAR) confidentiality. By way of background, CUNA represents about 90 percent of our nation’s 8,000 state and federal credit unions, which serve about 92 million members.

FinCEN is proposing to clarify the Bank Secrecy Act’s (BSA’s) non-disclosure provision regarding SARs by broadening the statutory prohibition against notifying a SAR target of a SAR filing. The proposal prohibits the disclosure of a SAR form or information revealing the existence of a SAR (“SAR information”) to any person, barring certain limited exceptions. FinCEN also proposes to modify the safe harbor provision to reflect amendments made by the USA Patriot Act, as well as incorporate a number of minor technical revisions to facilitate consistency among the various rules. CUNA is also filing a comment letter with FinCEN on the proposed interpretative guidance on sharing SARs with certain U.S. affiliates.

Summary of CUNA’s Comments

Discussion

Confidentiality of SARs

Currently, the non-disclosure provision of the BSA prohibits a financial institution and officers or employees of the government from disclosing that a SAR has been filed to any individual involved in the reported transaction. The proposed rule interprets the non-disclosure prohibition broadly to prohibit the disclosure of a SAR or SAR information to anyone except as permitted under certain circumstances. CUNA supports FinCEN’s efforts to strengthen the SAR non-disclosure provision and expand it to lessen the possibility of unintended disclosures. We commend FinCEN for taking into consideration the hesitancy of some financial institutions to file SARs for fear of unauthorized disclosure and the potential negative impact on their relationship with consumers.

Disclosure by Financial Institutions

Similar to the current rule, the proposed rule provides that a financial institution or its directors, officers, employees or agents that are subpoenaed or otherwise requested to disclose a SAR or SAR information are prohibited from doing so and must notify FinCEN of the request and its response to the request. We commend FinCEN for attempting to clarify the type of information covered under the non-disclosure prohibition. Additionally, the proposed rule amends the non-disclosure prohibition language to align it more precisely with case law that does not limit the prohibition on disclosure to only the SAR target, but to anyone who could potentially disclose this information to a SAR target. We believe a greater level of confidentiality for SARs and SAR information is necessary to encourage continued industry reporting and maintenance of ongoing dialogue between industry and law enforcement regarding potentially suspicious transactions.

Rules of Construction

The proposed rule contains three rules of construction that are designed to address questions related to the scope of the SAR non- disclosure prohibition and to implement statutory modifications to the BSA made by the USA Patriot Act.

The first proposed rule of construction makes clear that a financial institution or its directors, officers, employees or agents may disclose a SAR or SAR information to FinCEN or any Federal, state or local law enforcement agency or any Federal or state regulatory agency that examines the financial institution for BSA compliance. We generally support this rule of construction and see it as a part of FinCEN’s continuing efforts to encourage permissible sharing between the industry, law enforcement and regulators. However, CUNA suggests FinCEN provide guidance or best practices on standardized verification for SAR information sharing between depository institutions and appropriate law enforcement. A number of our member credit unions have expressed concern about the lack of information regarding standard verification procedures they should follow before releasing SAR information to law enforcement officials. We believe FinCEN should create a clear verification standard for both the industry and law enforcement and provide the industry with assurances that if the guidance is followed, they have taken adequate steps to ensure that SAR information has been released to the proper authorities.

The second proposed rule of construction states that the SAR non-disclosure provisions apply to the SAR or SAR information. The non-disclosure provisions do not apply to the underlying facts, transactions and documents upon which a SAR is based. Also, the rule clarifies that documents created in the ordinary course of business maybe discoverable in civil litigation. CUNA supports this clarifying rule. However, we believe it would be helpful to have guidance that provides examples and explains the distinction between protected SAR information and information that is not protected under the non-disclosure prohibition.

The third proposed rule of construction makes clear that the SAR or SAR information non-disclosure prohibitions do not preclude the sharing of SAR information within a financial institution’s organizational structure for purposes consistent with Title II of the BSA. We commend FinCEN for recognizing that SAR information-sharing within a financial institution is an integral part of ensuring enterprise-wide compliance with the BSA. CUNA supports this provision.

Disclosure by Government Authorities

The current rule (as amended by the USA Patriot Act) prohibits officers and employees of the government from disclosing a SAR or SAR information except as necessary to fulfill their official duties. The proposed rule extends the non-disclosure prohibition to all federal, state, local, territorial, or tribal government authorities and any director, officer, employee or agent of those authorities. The proposed rule limits permissible disclosure only to the extent necessary to fulfill official duties and the term “official duties” has been defined to designate those consistent with Title II of the BSA. The proposal makes clear that permissible disclosure does not include requests for disclosure of non-public information or disclosures made in response to a private legal proceeding request.

CUNA supports this provision of the proposed rule. Like FinCEN, we believe that ensured confidentiality of SARs and SAR information is imperative to encourage ongoing reporting and dialogue between the industry and law enforcement. We applaud FinCEN for taking this step to clarify its expectations regarding permissible SAR information disclosure not only to industry, but to other parties that have access to this information. As noted above, we believe this broader interpretation of the SAR confidentiality standard will lessen the risk of unauthorized disclosure and encourage continued industry participation in the BSA reporting process.

Liability Limitation

The safe harbor provisions were previously amended (under Section 351 of the USA Patriot Act) to clarify coverage for voluntary disclosures and to expand the scope of the limit on liability. The proposed rule clarifies that the safe harbor protection also encompasses disclosures made jointly with another institution. Additionally, the proposal makes clear that all parties to the joint filing fall within the scope of the safe harbor protection. CUNA supports this provision and we applaud FinCEN’s continued efforts to provide financial institutions with added assurances regarding safe harbor protections.

Compliance

The proposed rule specifies that SARs and SAR information can only be provided to FinCEN or its delegatees for the purpose of examining an institution for compliance with SAR requirements.

CUNA generally supports this provision. However, we believe that clarification should be made regarding the related issue of independent auditing for BSA compliance. A number of institutions contract with consultants for BSA independent auditing purposes and a part of that audit would include SAR compliance testing. As a result, institutions would need to provide access to SAR information to those auditors. Section 103.18 of the proposed rule does note that the proposed rules of construction do not prohibit the sharing of SAR information within the institution’s organizational structure for purposes consistent with the BSA. The language of the proposed rule alludes to possible permissible SAR information sharing in an agency context as well. However, we believe additional clarity is needed to address permissible disclosures in the independent auditing context are covered.

Technical Corrections and Harmonization

The proposed rule synthesizes a number of technical corrections found within the various SAR rules and incorporates these changes into Chapter X. CUNA supports these changes.

Thank you for the opportunity to comment on the proposed SAR confidentiality rules. If you have any questions about our comments, please to do hesitate to contact Senior Vice President and Deputy General Counsel Mary Dunn or me at (202)-638-5777.

Sincerely,

Nichole Seabron
Federal Compliance Counsel